Compared to residents of other wealthy nations, Americans are more likely to give their time and money to help others. In 2023, the United States ranked ninth in per capita gross domestic product (GDP) but fifth on the World Giving Index rankings.^[1]

Polling shows that Americans trust nonprofits more than government or business. Still, they generally know little about charitable giving and philanthropy, such as how these organizations distribute their funds and the rules that govern their activities.

Giving money to charity can provide personal and financial benefits to donors and be part of their legacy. If you are thinking about making a charitable gift—either now or when you pass away—there are some things to be aware of so you can make the most of your donation.

Fewer Americans Donating to Charity

According to a report conducted by Giving USA 2023, total charitable giving in the United States dropped 10.5 percent from 2021 to 2022. As a percentage of disposable personal income, giving declined to a 40-year low of 1.7 percent.^[2] Overall, the number of US households that annually give to charity declined from 66 percent in 2000 to less than 50 percent in 2018.

Nearly half of Americans who stopped giving to charity in the last five years told the Better Business Bureau they did so because they believe the wealthy are not paying their fair share. Others said they could not afford to contribute to charity.^[3]

Some statistics paint a rosier picture of American generosity. Adjusting for inflation, charitable giving by Americans was seven times greater in 2016 than in 1954. US charitable giving as a proportion of GDP has increased slightly over this period but has remained at around 2 percent for decades.^[4]

Americans grew more generous during the pandemic, with 2020 and 2021 donations topping 2019 giving levels.^[5] A recent Gallup poll reveals that 81 percent of Americans donated money to charity over the past year, with the percentage of those giving rising proportionately to household income.^[6] Around 90 percent of households making $100,000 or more give money to charity each year.

Where Americans are Donating

There are approximately 1.5 million charitable organizations in the United States. The Internal Revenue Service (IRS) generally defines public charity as any organization that receives a substantial portion of its income from public donations.

Many—but not all—charities qualify as tax-exempt under IRS rules. The 501(c)(3) tax exemption, also known as the charitable tax exemption, allows qualified organizations to avoid paying federal corporate and income taxes on most revenue sources.^[7]

Designated 501(c)(3) charities can also solicit tax-deductible contributions that allow donors to deduct money from these organizations on their tax returns. A gift made to a qualified tax-exempt organization as part of an estate plan can also help reduce estate taxes.

To meet tax-exempt IRS requirements, an organization must exclusively exist for one of these purposes:

●        Charitable

●        Educational

●        Fostering national or international amateur sports

●        Literary

●        Prevention of cruelty to animals and children

●        Religious

●        Scientific

●        Testing for public safety

Charities, foundations, and nonprofits can gain 501(c)(3) status if they satisfy IRS tax rules.^[8] These philanthropic entities can include private foundations, community foundations, corporate foundations, limited liability companies, donor-advised funds, and even crowdfunding campaigns.

The nation's top 100 charities received more than $61 billion in private donations in 2023. They include Feeding America, United Way, St. Jude Children's Hospital, Salvation Army, Habitat for Humanity, Goodwill, YMCA, and the Boys & Girls Clubs of America.^[9]

Charities and Taxes

Donating can be motivated by altruism, financial considerations, or a little bit of both. These donations can be accounts, tangible personal property, and real estate. A donor can even leave all their money and property to charity at their death.

A gift made during a donor's lifetime can result in an income tax deduction, provided the charity is an IRS tax-exempt organization. For cash contributions, eligible itemized deductions for charitable donations can be made up to a certain percentage of the donor's gross income. Limits also apply to gifts of appreciated securities or property in a single year.

There may be further limits on charitable gifts depending on how they are given (i.e., directly to a charity or a private foundation or using other strategies, such as a donor-advised fund). Appreciated securities may bypass the capital gains tax if given to a charity during a donor's lifetime.

When charitable gifts are part of an estate plan and transferred to the charity upon the donor's death, they can remove money and property from the donor's taxable estate, thereby lowering the donor's estate tax liability, if one exists. There is an unlimited charitable deduction for estate plan gifts to charities. Gifts of this type can take several forms, including charitable trusts, retirement accounts such as individual retirement accounts and 401(k)s, and gifts made via charitable foundations and donor-advised funds.^[10]

What to Know Before You Give

While giving may be better than receiving, donors who plan to make a significant charitable gift during their lifetime or death should temper their generosity with caution. Here are some things to look out for:

●        Make sure the organization you donate to is a reputable charity, not a scam. Charity fraud—schemes that seek donations for fake charities—can take many forms. Charity scams proliferate on the internet, particularly on social media. They can also involve emails, text messages, crowdfunding platforms, and phone calls. Be sure to thoroughly vet an organization before donating. Look for red flags such as time-urgent pitches, names, and website addresses that closely mimic real charities.^[11]

●        Check that the charity qualifies for a tax deduction. Charitable donation tax breaks provide an extra incentive to support a good cause. The IRS offers a search tool for eligible groups to receive tax-deductible charitable contributions.

●        Can you afford it? Charitable giving is not solely an activity of the rich. Households earning $40,000 or less give money with lower frequency than those households with higher incomes, but only by about 20 percentage points. Tax breaks are just one consideration for charitable giving; many people donate to charity for altruistic reasons. However, the gifts should not come at the expense of your financial security. Experts recommend starting with 1 percent of your income and working your way up from there if you can afford more.

Get Estate Planning and Tax Advice Before Giving

It is not too late to make philanthropy a part of your legacy. Whether you are new to charitable giving or want to step up your gifts, there are strategies to follow that can increase the value of your charitable efforts.

However, you plan to give and to whom you plan to give, the rules around charities can be complicated, and options abound. Schedule a consultation with our estate planning attorneys for professional advice about giving to charities, choosing what and where to donate, and the different gifting strategies that are available.

Contact Hartmann Law Today

Contact our office to speak to an estate planning attorney if you have questions about charitable giving.

Take steps to start your Life and Legacy planning today!  Take action to ensure your voice is heard when you are unable to speak for yourself.  Make the decision to protect yourself, your loved ones, your business, your property.   

Schedule a call today with Hartmann Law.

Hartmann Law provides Life and Legacy plans ready for today with an eye on the future.

YOUR CHOICES.  OUR GUIDANCE.

Life and Legacy Plans are created by design and not by default!